In a previous post we discussed crypto watchlists, in this post we'll discuss a watchlist with important markets for understanding macro economy.
First and foremost, here's the watchlist I use to gauge how the global economy is doing: https://www.tradingview.com/watchlists/69894048/
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I'll also make the disclaimer right now that I'm by no means a macro economy expert, not even close.
But if you have even half a brain this list will give you a better understanding of how the global economy is doing which, these days, also greatly affects crypto. And that's precisely the point of this list: because macro affects crypto so much nowadays, keeping up with the basics will give you a better idea of how our beloved cryptographic currencies will fair.
I'm going to keep the explanation about each ticker very brief and just say what's generally considered bearish or bullish for risk-on assets like crypto. If you want a more in depth understanding of these markets and how they are connected you'll have to do your own research which I recommend. I'm also only going to mention the most important tickers.
VIX A volatility index. The higher it rises the more volatility there is in equities. Generally speaking high volatility happens during times of turmoil (bearish) like in 2008 and 2020.
This is the most important one. The DXY is a US dollar index and represents the strength of the USD. The higher it goes the stronger it is relatively to other FIAT currencies. Because the USD is the world reserve currency that is used in most financial markets as the denominator, a strong dollar is bad for risk-on assets and a weak dollar is bullish.
The EURO, specifically versus the USD, has a inverse effect of the DXY. A rising EURO tends to be bullish for risk-on.
The Swiss Franc is a safe haven currency, which means it tends to trade higher in times of uncertainty. If it goes down in times of uncertainty it could mean something's very wrong (like at the time of writing, because the USD is rallying so hard, breaking all other currencies).
Biggest US stock index. Number up is bullish.
The correlation between the SPX and bitcoin has been very high in recent times so it can definitely be worth it to keep an eye on this index. SPX500USD is basically a perpetual swap contract of the SPX, but it does close on weekends.
The Nasdaq, more tech focused than the SPX.
NAS100USD is basically a perpetual swap contract of the IXIC, but it does close on weekends.
HSI (China) / NI225 (Japan) / UKX (UK) / DEU40 (Germany) / CAC40 (France)
The main stock indices of other big economies. Number up is bullish.
An interesting index of recent big American IPO stocks. In a bull market this tends to rise, in a bear market it typically performs really badly. This is also a good instrument to gauge froth in the market. If it rises parabolically it probably indicates that the market is getting overheated.
A very important Taiwanese company for the global tech industry. If TSM performs well it bodes well for the entire tech industry. Bullish tech is bullish for risk-on at large.
Safe haven asset, tends to perform well in times of uncertainty.
Typically lags gold and is basically just a higher beta trade to GOLD.
Both silver and gold perform better when the USD is weak.
Oil is needed for shipping and producing goods. A high oil price can put a strain on the broader economy, which is bearish.
An index of shitty corporate bonds. Tends to crash hard when the economy takes a nosedive because these bonds have a high chance defaulting.
Increasing junk bond prices tell you that the market has a strong risk appetite and that people except improving economic conditions.
An index of better quality corporate bonds. Same effect as the HYG but should be less volatile because it's a bit more desired than the shitty bonds of course.
First of we have the US10Y-US02Y calculation. This is considered "a recession indicator". When short term yield is higher than long term yield it means that market participants have a pretty negative outlook on the economy: bearish. If the US10Y-US02Y goes below 0 there's a very high chance that the US economy falls into a recession, which is also really bad for the rest of world. The US economy is still the most important one in the world.
When inflation is high bonds sell off because the yield is lower than inflation. When bonds sell off the yield goes up to make the bond more appealing again. Skyrocketing yield like what we're seeing at the time or writing is bad because it means that market participants expect inflation to remain elevated for a while. High inflation basically makes everyone more poor so that's obviously bad. High inflation also means that central banks will have to raise interest rates and pull liquidity which is also bearish.
The Japanse 10Y is a special one because Japan does YCC (yield curve control). Their central bank forcefully keeps the 10 year yield low by buying as many bonds as necessary. They want to keep the yield below 25 basis points. It's probably bad news if that peg breaks (they sometimes raise the ceiling).
CENTRAL BANK INTEREST RATES
Higher rates are bearish, lower rates are bullish.
CENTRAL BANKS BALANCE SHEETS
Increasing balance sheets indicates that central banks are injecting more liquidity which is bullish for risk-on assets. I'm not saying that this is healthy for the economy, I'm only talking about the effects on risk-on assets.
A bit more alpha...
There are also events that take place that are incredibly important for macro economy. There's a neat website with a calendar of all the most noteworthy events: https://www.forexfactory.com/calendar
This website even highlights the importance of each event with a colour. Red is the most important stuff.
Finally I want to make it clear that I went blitz mode through all of these tickers. The impact of these markets and how they're all connected is of course not as straight forward and simple as I made it out to be in this article. But this can be a good start to better understanding the macro landscape.
That's it for this post.
Until next time!